Romania, the 6th destination for data centers in Europe

Romania ranks sixth among the top destinations on the data centers market in Europe, while the Nordics and the Netherlands occupy the first positions, according to Savills’ New Data Center Investment Index.

The number of data centers is multiplying to accommodate the surging demand for data storage. Thus, the need to have smaller scale domestic facilities to comply with data and privacy laws is set to lead to an uptick in activity across all of Europe.

Most of the world‘s data centers are currently based in the US, but also in the UK, Germany, France and the Netherlands. However, this geographical distribution could well change soon.

According to Savills, data centers no longer have to be located close to their clients but can be located in countries where clean energy is abundant and cheap as long as connectivity is safe and fast. Data, after all, is the most mobile commodity on earth and data center service companies can choose where to locate their premise in order to reduce their operating costs.

Given the fact that data centers require energy and water, in order to keep the servers cool (3 to 4 percent of the world power is used by data centers), there is great concern regarding their carbon footprint similar to the aircraft industry. Therefore, there is a focus on using environmentally-friendly technologies in the mega data centers built mainly by Internet giants and cloud companies such as Google, Facebook, Apple, Amazon and Rackspace.

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As a consequence, a new asset class has emerged at the beginning of the 21st century, a new investment market with attractive yields (5 percent and 7 percent across Europe, the average total return in 2017 was 28.43 percent) compared to other asset types. This market requires a good degree of specialisation which explains the limited group of players, but from an occupier’s perspective, the sector is flourishing and demand for data storage is set to grow dramatically in the next five years.

Investment in data centres

EUR 450 million were invested in European data centers in 2017, with the UK accounting for 41 percent of all deals between 2007 and 2017, says Savills, but investment activity is beginning to pick up across continental Europe as investors become more familiar with the sector.

According to Savills, owing to the growing popularity of cloud-based infrastructures, the need for cost-effective hyper-scale data centers of 50,000+ sqm in Europe has grown exponentially over the past five years, with Cisco predicting that hyper-scale data center traffic will quintuple over the next five years.

Savills has therefore identified the best locations in Europe in which to invest, benchmarking 20 countries against 12 indicators crucial to the development of data centers. Surprisingly, or not, Romania ranks sixth of the top 20 countries in Europe for data center investment, right after the Nordics, which take four of the top five slots, given their strengths in offering low energy costs, cool weather and access to water, with the Netherlands rounding out the top five.

“Romania has seen an accelerated development from the perspective of the IT & C industry, backed by the market entry of renowned companies (Amazon, Fitbit) and by the expansion of existing major players (Microsoft, HP). From this perspective, the rise of investment in data centres will just be a matter of time and they will probably target Bucharest and IT hubs such as Cluj, Timisoara, Iasi,” Codrin Matei, managing partner and head of Capital Markets for Crosspoint in Romania, comments.

With data centre occupiers taking leases of 10 years or more, and an increasing number looking towards sale and leaseback options, the sector offers investors an appealing proposition. Data Centres are increasingly an investment product category accepted by institutional investors such as AXA and CBRE Global Investors, and the weight of money has pushed yields down significantly over the last couple of years to 5 percent to 7 percent.

Datacentre investment REITs are the most active buyers in the sector, notably US Equinix REIT, the Asian Keppel DC REIT and the US Digital Realty, says Savills, but as the market grows it is slowly opening to non-specialist investors (investment managers and general REITs).